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The federal budget deficit for the fiscal year that ended on September 30, 2026, reached nearly $2 trillion, the Congressional Budget Office reported, marking the third-largest shortfall in U.S. history behind the two pandemic-era deficits. The CBO’s totals, released Thursday, show tax collections rose modestly while outlays climbed faster, widening the gap between revenue and spending.
Key figures from the CBO
The CBO says the government collected more than $5.4 trillion in tax revenue in fiscal 2026, about a 3 percent increase from the prior year. At the same time, federal spending rose about 6 percent to roughly $7.4 trillion, producing the near-$2 trillion deficit.
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Interest on the national debt was a major contributor to the spending surge: net interest payments increased 11 percent in fiscal 2026 to more than $1.1 trillion, the CBO reported. Other drivers of higher outlays included entitlement programs and defense. Social Security spending rose about 5 percent, driven by both higher average benefits and more beneficiaries, while Medicare and Medicaid spending each increased around 8 percent and military spending grew roughly 5 percent.
Tariffs, refunds and revenue claims
The CBO’s data also undercut recent claims that tariffs have produced massive new revenue. The agency reported $182 billion in customs duties for the year, an 11 percent decline from 2025. That drop reflects roughly $130 billion in refunds the government had to issue after the U.S. Supreme Court ruled certain tariff collections unlawful earlier in the year, according to the CBO. The office said those refunds meaningfully reduced reported tariff receipts.
Voices on the fiscal outlook
Critics and budget experts featured in the coverage warned that without changes the trend is unsustainable. David Ditch, a policy analyst at the Cato Institute, told Reason, “The economy can’t keep pace with the relentless growth of programs such as Social Security and Medicare,” adding that seniors receive more in benefits than they paid in payroll taxes.
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a nonprofit that advocates deficit reduction, urged policymakers to aim for a significantly smaller structural shortfall. In a statement she said, “Clearly, we can’t keep going like we have,” and called for reducing future deficits to about 3 percent of gross domestic product — roughly half the level reached in 2026. “It’s time to start working on the path forward,” she added.
Treasury Secretary Scott Bessent has, according to reports, advised the Trump administration to pursue a similar goal of cutting the deficit to about 3 percent of GDP by 2028.
Political context and near-term choices
The account noted limited attention to the deficit in the current election cycle and raised concerns about market reactions: yields on both short- and long-term Treasury debt have climbed this year, which the article described as a signal that some investors view U.S. government debt as a riskier asset than in previous years.
The piece also flagged potential policy moves that could add to near-term spending. It said Congress may reconvene in the post-election lame-duck session to consider a large military spending increase proposed by the president. Separately, it noted the president has pledged to send $5,000 to every American if Republicans retain control of Congress — a proposal the article called “an outright political bribe” and estimated would cost well over $1 trillion.
Taken together, the CBO numbers and the reactions they prompted underscore the tension between slowly rising revenue and faster-growing mandatory spending, defense outlays and interest costs. Policymakers face a choice between measures to narrow the gap or accepting continued, sizable deficits in the years ahead, observers say.
